Tag Archives: Shortened Statute of Limitations

Employers continue to include language in employment contracts which purports to shorten the statute of limitations applicable to FLSA claims. By law, the statute of limitations is 2 years on such claims if the employee is unable to show the employers violations are willful, and 3 years if the employee can make such a showing. Recently, the Sixth Circuit reviewed FedEx’s contract that purported to reduce that time to 6 months. As discussed below, it struck down the employers’ attempts to shorten the statute of limitations. Reasoning that same was an impermissible waiver of rights under the FLSA, the court agreed that such a limitation was unenforceable. In so doing, the Sixth Circuit reversed the trial court, which had held that such an abridgement of FLSA rights was permissible.

Shortly after the FLSA was enacted, the Supreme Court expressed concern that an employer could circumvent the Act’s requirements—and thus gain an advantage over its competitors—by having its employees waive their rights under the Act. See Brooklyn Savs. Bank v. O’Neil, 324 U.S. 697, 706–10, 65 S.Ct. 895, 89 L.Ed. 1296 (1945). Such waivers, according to the Court, would “nullify” the Act’s purpose of “achiev[ing] a uniform national policy of guaranteeing compensation for all work or employment engaged in by employees covered by the Act.” Jewell Ridge Coal Corp. v. Local No. 6167, United Mine Workers of Am., 325 U.S. 161, 167, 65 S.Ct. 1063, 89 L.Ed. 1534 (1945); see also O’Neil, 324 U.S. at 707. The Court therefore held that employees may not, either prospectively or retrospectively, waive their FLSA rights to minimum wages, overtime, or liquidated damages. D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 114, 66 S.Ct. 925, 90 L.Ed. 1114 (1946); O’Neil, 324 U.S. at 707;see also Runyan v. Nat’l Cash Register Corp., 787 F.2d 1039, 1041–42 (6th Cir.1986) (en banc).

The court then struck the contract clause at issue reasoning:

The issue here is whether Boaz’s employment agreement operates as a waiver of her rights under the FLSA. Boaz accrued a FLSA claim every time that FedEx issued her an allegedly illegal paycheck. See Hughes v. Region VII Area Agency on Aging, 542 F.3d 169, 187 (6th Cir.2008). She filed suit more than six months, but less than three years, after her last such paycheck—putting her outside the contractual limitations period, but within the statutory one.

An employment agreement “cannot be utilized to deprive employees of their statutory [FLSA] rights.” Jewell Ridge, 325 U.S. at 167 (quotation omitted). That is precisely the effect that Boaz’s agreement has here. Thus, as applied to Boaz’s claim under the FLSA, the six-month limitations period in her employment agreement is invalid.

In so doing, the court rejected FedEx’s reliance on what it deemed inapposite case law:

FedEx (along with its amicus, Quicken Loans) responds that courts have enforced agreements that shorten an employee’s limitations period for claims arising under statutes other than the FLSA—such as Title VII. And FedEx argues that the discrimination barred by Title VII (i.e., racial discrimination) is just as bad as the discrimination barred by the FLSA, and hence that, if an employee can shorten her Title VII limitations period, she should be able to shorten her FLSA limitations period too. But that argument is meritless for two reasons. First, employees can waive their claims under Title VII. See, e.g., Alexander v. Gardner–Denver Co., 415 U.S. 36, 52, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974). Second—and relatedly—an employer that pays an employee less than minimum wage arguably gains a competitive advantage by doing so. See Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27, 36, 107 S.Ct. 2694, 97 L.Ed.2d 23 (1987). An employer who refuses to hire African–Americans or some other racial group does not. The Court’s rationale for prohibiting waiver of FLSA claims is therefore not present for Title VII claims.

FedEx also relies on Floss v. Ryan’s Family Steak Houses, Inc., 211 F.3d 306 (6th Cir.2000). There, we held that an employee asserting an FLSA claim can waive her right to a judicial forum, and instead arbitrate the claim. Id. at 313, 316. From that holding FedEx extrapolates that employees can waive their “procedural” rights under the FLSA even if they cannot waive their “substantive” ones. But the FLSA caselaw does not recognize any such distinction. That is not surprising, given that the distinction between procedural and substantive rights is notoriously elusive. See Sun Oil Co. v. Wortman, 486 U.S. 717, 726, 108 S.Ct. 2117, 100 L.Ed.2d 743 (1988). More to the point, Floss itself said that an employee can waive his right to a judicial forum only if the alternative forum “allow[s] for the effective vindication of [the employee’s] claim.” 211 F.3d at 313. The provision at issue here does the opposite.

The limitations provision in Boaz’s employment agreement operates as a waiver of her FLSA claim. As applied to that claim, therefore, the provision is invalid.

This case was before the court on the plaintiff’s motion for partial summary judgment as to the defendant’s twenty-sixth affirmative defense, which asserted that the claims were barred based on the six-month limitations provision contained in an agreement between the parties that the plaintiff was required to sign as part of his employment with the defendant. The plaintiff argued that the clause in the agreement between the parties shortening the time in which the plaintiff had to bring his claims was unconscionable, rendering the agreement unenforceable, and his claims timely. The court granted the plaintiff’s motion holding that the six-month limitations period was in fact unconscionable under California law.

Initially the court held the agreement was procedurally unconscionable, because the agreement was a contract of adhesion. Discussing this issue, the court reasoned:

The threshold inquiry in California’s unconscionability analysis is whether the … agreement is adhesive.” Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir.2006) (quoting Armendariz, 99 Cal.Rptr.2d 745, 6 P.3d at 689). A contract of adhesion is “a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Armendariz, 99 Cal.Rptr.2d 745, 6 P.3d at 689. A finding that a contract is adhesive is essentially a finding of procedural unconscionability. Nagrampa, 469 F.3d at 1281;Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893 (9th Cir.2002) (“The [contract] is procedurally unconscionable because it is a contract of adhesion….); Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 113 Cal.Rptr.2d 376, 382 (Cal.Ct.App.2001). The critical factor for determining both adhesion and procedural unconscionability is whether the contract “was presented on a take-it-or-leave-it basis” and “oppressive due to an inequality of bargaining power that result[ed] in no real negotiation and an absence of meaningful choice.” Nagrampa, 469 F.3d at 1281.

Goodwill’s senior human resources administrator, Grizelda Guzman, states that “all employees were presented with [agreement at issue] in 2008.” Dkt. No. 32–1 ¶ 5. This suggests that the agreement was a standard contract, drafted by Goodwill. As the moving party, however, it is Bowlin’s burden to show that there is no genuine factual dispute that the manner in which the contract was presented to him renders it procedurally unconscionable. To this end, Bowlin submits a declaration and avers that “a manager presented [him] with a copy of the agreement … to initial and sign while [he] was working,” that no one “reviewed the terms or content of the agreement with [him],” and that he “was not able to discuss, negotiate or modify any of the terms or content of the agreement.” Dkt. No. 29–1 ¶¶ 2–4… Accordingly, the Court finds that as a matter of law, the agreement is procedurally unconscionable.

The court then held that the agreement was also substantively unconscionable, holding that, as a matter of law, applying a six-month limitations period to wage and hour claims is unduly harsh.

Because the court held that the agreement was both procedurally and substantively unconscionable, it struck the six-month limitations period from the parties’ agreement and granted the plaintiff’s motion for partial summary judgment.

Before the court in this putative collective action were the defendants’ motion to dismiss and remand the case to arbitration, as well as plaintiffs’ motion to conditionally certify the case as a collective action. As discussed here, the court held that the provision within the arbitration agreement purporting to reduce the applicable statute of limitations to one year (from either two or three years) was unenforceable. However, because the court further held that the unenforceable provision was severable, it severed the statute of limitations provision and otherwise held the arbitration agreement to be enforceable. Thus, it remanded the case to arbitration after striking the unenforceable provision.

After reviewing a history of applicable case law and determining that the enforceability of the provision in question was an issue of first impression, the court reasoned that allowing an employer to contractually shorten the statute of limitations applicable to FLSA claims would unduly abridge the statutory rights granted under the FLSA. The court explained:

“The FLSA requires employers to pay their employees a statutory minimum wage and to pay overtime compensation at a rate not less than one and one-half times the employees’ regular rate of pay. 29 U.S.C. §§ 206 and 207 (2011). An employer who fails to comply with these provisions is liable for the unlawfully withheld compensation, as well as an additional equal amount of liquidated damages. Id. at § 216(b). These damages, including liquidated damages, are compensatory. Elwell v. Univ. Hosp. Home Care Servs., 276 F.3d 832, 840 (6th Cir.2002).

A plaintiff seeking to recover under the FLSA must file the claim within two years of accrual of the cause of action, or within three years of accrual for a willful violation. 29 U.S.C. § 255(a) (2011). Each paycheck that fails to include required wages constitutes a separate statutory violation. See Archer v. Sullivan Cnty., Nos. 95–5214, 95–5215, 129 F.3d 1263, 1997 WL 720406, at *2 (6th Cir.1997). The plaintiff may recover compensatory damages under § 216(b) as far back as the statute of limitations will reach—that is, the plaintiff may recover up to two years of compensatory damages if the violation was not willful, and up to three years of compensatory damages if the violation was willful, dating back from the date of the complaint. See, e.g., Campbell v. Kelly, No. 3:09–cv–435, 2011 WL 3862019, at *10 (S.D.Ohio Aug.31, 2011) (finding that, where plaintiff filed FLSA claims on November 16, 2009, the plaintiff could seek relief dating back to November 17, 2007 for a non-willful violation, or back to November 17, 2006 for a willful violation); Sisk v. Sara Lee Corp., 590 F.Supp.2d 1001, 1004 (W.D.Tenn.2008) (finding that where plaintiff filed FLSA claims on May 7, 2007, the “relevant time period” for willful violations began on May 7, 2004); Herman v. Palo Grp. Foster Home, Inc., 976 F.Supp. 696, 700, 705–06 (W.D.Mich.1997) (finding that defendant willfully violated FLSA and awarding back wages and liquidated damages for period of three years prior to filing of complaint), aff’d,183 F.3d 468 (6th Cir.1999) (upholding damages award). Thus, under the FLSA, a plaintiff’s substantive right to full compensation is determined by the statute of limitations. As a consequence, unlike the federal statutory claims at issue in Morrison, Daimler–Chrysler, and Ray, shortening the statute of limitations for an FLSA claim necessarily precludes a successful plaintiff from receiving full compensatory recovery under the statute.

Indeed, BrickTop’s does not dispute that enforcing the contractual limitations provision would limit the Plaintiffs to one year of compensatory damages recovery, even though the FLSA entitles Plaintiffs to more. Thus, Defendants concede that the provision prevents plaintiffs from recovering the “full panoply” of compensatory remedies to which the FLSA entitles them. That is not a permissible result. Plaintiffs’ substantive right to full compensation under the FLSA may not be bargained away. Accordingly, the contractual limitations provision is unenforceable as to FLSA claims.

In reaching this holding, the court has undertaken the necessary statute-specific analysis that neither the Boaz court nor the Wineman court conducted. In Wineman, which was issued before the U.S. Supreme Court decision in Penn Plaza limited Barrentine to its facts, the district court found that a six-month contractual limitations provision in an employment agreement was not enforceable as to FLSA claims. Wineman, 352 F.Supp.2d at 821–23. The defendant had argued, as BrickTop’s does here, that waiver of the FLSA statute of limitations constituted waiver of a procedural right, not a substantive right. Id. at 922. The court rejected this argument, reasoning that, “in light of the public policy implications, … that is a distinction without a difference.” Id. In support of this reasoning, the court relied on Barrentine for the proposition that even FLSA procedural rights, including the right to the judicial forum, could not be abridged, compromised, or waived by private agreement. Id. at 823. Thus, the court characterized the shortened limitations period as “a compromise of employees’ rights under the FLSA” in violation of public policy. Id. at 822–23. It did not analyze whether the shortened statute of limitations affected FLSA remedies, likely based on its assumption that Barrentine rendered that inquiry irrelevant.

In Boaz, the district court enforced a six-month contractual limitation on FLSA claims, but, like Wineman, did not analyze whether that limitation affected FLSA remedies. In Boaz, the plaintiff had asserted claims under Title VII for race and gender discrimination, as well as FLSA claims for pay discrimination and failure to pay overtime compensation. Id. at 932. At the summary judgment stage, the plaintiff, relying on Wineman, contended that her FLSA claims were not time-barred by a six-month limitations provision in her employment agreement. The court declined to follow Wineman, reasoning that the subsequent Penn Plaza decision limited Barrentine to its facts, and found that federal statutory procedural rights may be abridged. Id. The court observed that several courts had found that limitations provisions were enforceable as to other federal statutes, including discrimination claims under § 1981, ERISA claims, and FMLA claims. Id. at 933. It is also noted that, as a general matter, statutes of limitations are procedural, not substantive. Id. However, without any analysis specific to the FLSA, the court summarily concluded that the FLSA statute of limitations is procedural and, therefore, waivable.

Thus, although Boaz and Wineman reached differing conclusions about the enforceability of a contractual limitation on FLSA claims, neither reached the crucial inquiry presented here. In particular, the reasoning in Boaz is flawed for two reasons. First, the Boaz court misinterpreted Penn Plaza, which merely held that statutory claims may be arbitrated, but did not address whether the statute of limitations for any federal statute—let alone the FLSA—constituted a waivable right. Second, the court should not have concluded that the FLSA statute of limitations was purely “procedural” without assessing whether enforcing a shortened limitation on FLSA claims prevented successful plaintiffs from vindicating their substantive right to full compensation.”